Taking on new work without the capacity to deliver it on time can leave your firm with a mountain of problems. Honestly evaluating what your team can tackle can help you avoid these pitfalls.
Watch our video below or read the article underneath to understand more!
1. Files Get Stuck In WIP
When your WIP pile gets too high, files move at a snail’s pace. Your team becomes overwhelmed, dividing their focus among too many projects. As a result, work moves out the door slowly and cash flow stagnates.
2. Work-Life Balance Is Sacrificed
Overcommitting to too much work means your staff must work longer hours to get it done. Soon, staff morale suffers, and team members start looking for greener pastures, resulting in higher-than-average attrition.
3. High-Value Staff Are Under-Utilized
Being short of capacity shifts the focus to simply “getting the work done” by any means necessary. Firms with insufficient resourcing frequently fall into a “Capacity Trap” – where high-value resources are forced to do lower-value work.
There are two reasons to avoid the Capacity Trap:
- Wasted profit: When an accountant who has the ability to bill $150 per hour does $30 per hour work, the opportunity cost is $120 per hour. Multiply the opportunity cost for every under-utilized resource in your firm…and that’s a lot of waste.
- Lowering of Staff Morale: Team members may be initially willing to do whatever needs to be done. But if a mismatch between ability and requirements persists, staff soon become unhappy.
4. Value Delivery Decreases
When your team is mired in too much compliance and procedural work, you can’t add value to your clients based on what the numbers are saying. Eventually, clients stop calling to seek your strategic knowledge, or they come to see you as simply a “compliance shop”.
5. New Business Development Suffers
Ironically, what starts as enthusiasm in bringing new business on board can have the opposite effect.
Once your team gets bogged down with Work In Progress, your accountants end up sitting in front of a computer, instead of sitting in front of clients. Suddenly, your new business pipeline runs dry.
6. The Cash Flow Rollercoaster Results
Firms that have a chronic lack of capacity tend to suffer from a painful cash-flow rollercoaster that looks like this:
- You go out and get a stack of new work
- Your team gets busy doing the work
- New business development dries up
- You finally get the work out the door, but…
- Your pipeline of work and cash is at an all-time low, so…
- You re-focus on getting new work and…
- You return to step 1
Having too little capacity is loaded with negative consequences for accounting firms. Knowing when to say “No” to new work is critical for keeping your team motivated, delivering added-value work on time, maintaining a positive cash flow, and ultimately, ensuring new clients keep coming through your door.